Which statement about expenses is true?

Which statement about expenses is true?

• A. They are the same as revenue
• B. They are always variable
• C. They are only paid monthly
• D. They are costs incurred by a business other than material and labour costs

Answer: (D)

Expenses are the costs a business incurs in its operating activities that are charged to the income statement. In many cost classifications used in management accounting, material costs and direct labour are treated as production costs (part of cost of goods sold), while the remaining costs—such as overheads, depreciation, rents, utilities and administrative expenses—are the other costs that show up as expenses in the period. So the statement that expenses are costs incurred by a business other than material and labour costs fits this idea: it points to the non-production or overhead-type costs that are expensed rather than direct production costs. This helps distinguish revenue from expenses, since revenue is income from selling goods or services, not a cost. Expenses can be fixed or variable, and they aren’t necessarily paid every month—timing can vary with accruals, prepayments, or different billing schedules.

Expenses are the costs a business incurs in its operating activities that are charged to the income statement. In many cost classifications used in management accounting, material costs and direct labour are treated as production costs (part of cost of goods sold), while the remaining costs—such as overheads, depreciation, rents, utilities and administrative expenses—are the other costs that show up as expenses in the period. So the statement that expenses are costs incurred by a business other than material and labour costs fits this idea: it points to the non-production or overhead-type costs that are expensed rather than direct production costs.

This helps distinguish revenue from expenses, since revenue is income from selling goods or services, not a cost. Expenses can be fixed or variable, and they aren’t necessarily paid every month—timing can vary with accruals, prepayments, or different billing schedules.